Rick Kozlowski

Rick Kozlowski

(802) 864-5756



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Third Party Sales

Perhaps the most common form of business transition is a sale to a third party.  Unlike sales to family members or employees (whether key employees or an ESOP), the sale to a third party involves people unknown (or at least lesser known) to you.  As a result, a good deal of caution is required to prevent making mistakes common to sales of this type.

Here’s a short list of the mistakes to avoid (and factors to consider) when selling your business to a third party:

Be prepared.  As discussed elsewhere on this site (Maximize Value), it is important to get your ducks in a row in order to effectively position your business for sale.  Your financial statements, books, employees, leases, contracts, etc.  should be ready to share with a potential buyer.  Often, it takes a year or two to properly prepare a business for sale.

Assemble a Transition Team.  When you sell your business, you will be asked to assume certain risks -- legal, tax and otherwise.  You are an expert at what you do, but are unlikely to be an expert in analyzing, reducing and/or eliminating these risks.  For more information, visit the Create a Plan page.

Due Diligence Regarding Potential Buyers.  Hopefully, there are a lot of potential buyers for your business -- some good, some bad.  If you accept an offer on your business, it may be months before the transaction will be ready to proceed.  If the buyer is not financially sound, and able to consummate the deal, you could waste precious time going down a dead end.  Before accepting an offer, you need to investigate the buyer to be sure that it can perform (that’s another way in which a good team can help).

Confidentiality.  If you start to market your business for sale, you should be concerned about your staff and your customers finding out and changing their behavior as a result.  Losing key employees and/or customers in the months prior to a sale can have a substantial effect on the value of your business.  If a broker is involved, you should discuss the means by which the sale will be kept confidential.  If no broker is involved, you need to be discrete about the buyer you solicit.

Financing.  Buyers will often make offers that require you to act as bank for part of the purchase price, or to make payment of the price conditional on future performance.  In today’s environment, staying flexible on these issues will expand the potential universe of buyer.  But . . . the key is to be able to analyze the risks your assume by financing some of the purchase price or conditioning your payout on future events.  Again, a team approach can help you avoid costly mistakes in this area.

If you have any questions about selling your business, feel free to contact me by accessing the information at the left.

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